Lorenzo Bini Smaghi and Michala Marcussen: Strengthening the euro area Architecture A proposal for Purple bonds

The euro area is currently facing a dilemma. While it is widely recognized that its architecture needs to be strengthened, some of the key proposals to achieve this goal encounter political difficulties. Genuine Eurobonds with joint and several liability would bring significant economic benefits and stability. However, they would require transfer of sovereignty on fiscal policy from the member states to the euro area, something that does not appear to be politically feasible in the foreseeable future. On the other hand, just keeping the status quo exposes the fragility of the euro area in the event of a new crisis. Several authors have sought to address this dilemma through various proposals. This paper presents our contribution to the debate.